The renewable energy sector has had its share of bad press domestically in the past couple of years. Globally, China and other countries like Germany and Brazil are making serious investments in clean energy and threatening to leave the US behind. But the authors of a new book have a seven-point action plan to put the U.S. in front of this growing industry and keep it there. Denis Du Bois interviews industry analyst Ron Pernick, co-author of Clean Tech Nation: How the USA Can Lead in the New Global Economy.
(This is not the broadcast version.)
Denis DuBois: Cleantech is alive and well, despite the economy. That’s the assertion co-authors Ron Pernick and Clint Wilder make in their latest book, Cleantech Nation: How the USA Can Lead in the New Global Economy. They say the United States can stay competitive on the global stage, even as other industries decline, by investing in technologies that harness renewable energy and cut resource consumption.
My guest is Ron Pernick, cofounder and managing director of Clean Edge, a research and advisory firm. Ron, Clean Tech Nation is your second book, the previous one was Clean Tech Revolution. In both you paint a pretty bright future for the U.S. in the clean technology industry. With all the bad financial news from the solar sector, and seemingly unstoppable competition from China, what keeps you so optimistic?
Ron Pernick: It really depends what figures you are looking at. For example, on the investment front, in 2000, about one percent of total venture capital activity in the United States was focused on clean tech. Last year, in 2011, it was 23 percent. We’ve seen this huge shift from cleantech not even being on the radar screen to being one of the third largest investment classes today, up there with life sciences and high tech.
Denis: We’ve been hearing more of the idea lately, that fossil fuels don’t need the subsidies they enjoy today. You propose going a step farther and eliminating subsidies for all forms of energy. Is the renewable energy industry already so healthy that it can withstand losing its subsidies?
Ron: What really needs to happen is we need a level playing field. The idea of subsidies in particular is that you want to fund early gestation of a new technology. Fossil fuels, natural gas and coal ‑‑ they’ve all been around a long time. We make the case, along with many on both the right and left, that they simply just don’t need subsidies any more. We should pull the plug.
Renewables and nuclear are a somewhat different case. Nuclear because if you took the subsidies away tomorrow, they would be gone tomorrow, and renewables because they’re still in their earlier gestation periods than the other fossil fuel technologies. We are calling on getting rid of subsidies or phasing them out over a five to ten year period for nuclear and for renewables. At that point, you will have a level playing field.
Denis: Investors complain of the uncertainty of clean energy subsidies that expire every few years, and have to be renewed by Congress — but do you worry that eliminating all subsidies would just remove all doubt and send investors running for the exits?
Ron: I don’t. In fact, I think what is most important, first of all, is that we have outlined that you have got to get rid of the subsidies for the fossil fuel industry. There are other things you need to do to level the playing field, but that’s a critical one. Then you would basically phase out subsidies for renewables and nuclear in an orderly fashion, with a declining subsidy over a five to ten year period.
Solar has dropped in cost from $7 a peak Watt, installed, just three or four years ago, to now sub‑$3 a peak Watt globally. We’re well on our way to $2.
These technologies are starting to get cost competitive. They’re starting to reach price parity, but yes, we do need to have market certainty. If we could get a three, five, six, seven year extension and then phase them out, that would do a lot for the marketplace.
Denis: In your book you propose a seven-point action plan for how the U.S .can be competitive in cleantech. Number three is especially interesting, “Leverage investment tools from the oil and real estate sectors…”
Ron: About 20‑plus years ago, the federal government created a new investment structure called an MLP, or a master limited partnership. And these have been used very successfully, primarily by the natural gas industry. There’s more than $200 billion sitting in these master limited partnerships.
They return, on average, between five to 12 percent per year. We believe, along with many others, that if you were to open these up to renewables, that they offer a similar annuity stream. In which case, they could actually deliver similar returns and would be a very good investment vehicle.
Again, similar to the subsidies, we’re saying, “Let’s level the playing field.” There’s no reason why renewables shouldn’t be able to use this similar structure. It’s a simple tax code change. It could be done by Congress or the IRS. We think it would go a long way.
The other great area of innovation, potentially, could be what’s very familiar to folks, which is a real estate investment trust. If you look at the real estate investment trust and open it up so you can invest in efficiency assets and renewable assets, that could go a long way, also, in opening up a new pool of capital.
Denis: Much of your book focuses on a need for partnerships between private capital and public funding. You’re in favor of an investment vehicle modeled after the Export-Import Bank. Describe how that would work.
Ron: Right now there are a number of places already implementing such banks. Connecticut has a green bank that’s being deployed at the state level. Chicago is looking at a smart infrastructure bank to put in new green buildings and infrastructure within Chicago.
The great thing about Ex‑Im is that it fills in gaps in financing. Private capital still comes in, but basically public money is brought in around the edges. We think an infrastructure bank is one potential solution. If you just look this week on the East Coast and this very clear need to embolden our grid, that money has to come from somewhere. Infrastructure banks are one great way to achieve that.
What I would also add in here — there are very few areas of agreement between the Chambers of Commerce and the AFL-CIO, but they actually both agree we need to spend a lot more money on infrastructure.
Denis: Can the US achieve all seven policies in your proposal?
Ron: Actually, I think it’s more important to ask, “Can the US be a clean tech leader?” Absolutely, they can be –it can be, and I think it will be.
Denis: With or without taking these 7 actions?
Ron: The seven‑point action plan was simply seven ideas that we think could get bipartisan support and could go a long way in furthering that. But they’re not the end‑all, be‑all. By no means do all of them have to happen or will all of them indeed come to fruition.
For example, you could have something like a carbon tax. We don’t know how feasible that is politically today but you could have that policy, in which case you might not need the national renewable energy standard and some other things.
This is simply an outline that we’ve come up with. This country today does not have an energy plan in place. Clearly we need that. We have metro regions and states that are taking leadership roles. We need more of a national leadership role. Any of these would go a long way in furthering that leadership for the United States.
Denis Do private investors, who still remember the dot-com era, have the patience for the long timeframes involved in this sector?
Ron: I think it’s really important when you look at the investment landscape that you understand that in particular energy industries, water industry, transportation infrastructure, all of these things have very long time cycles. It’s really important both for private and public investors that the capital that’s coming forward to fund clean tech understands that this isn’t a one or two or three year time cycle we’re talking about, but a decades‑long transition.
That’s something that I think early on the venture community didn’t fully appreciate and is really important as we move forward.
A great example here. I was talking with Dan Ryker when he was at Google when we were interviewing and doing research for the book. He said, “Ron, Google will get an idea. They’ll put coders to it. They’ll take three months to develop it. They’ll put it up on the Internet. Within six months, they’ve got millions of users.”
That’s not how it works in the energy industry. Things take many, many years for the transition to take place. Some good news there is that if you look at places like South Dakota and Iowa, they’re now at more than 20 percent of their electricity generation coming from the wind.
South Dakota alone went from five percent three years ago to 22 percent last year. These shifts can happen, but they still take time. It’s important to take a long term perspective.
Denis: Thank you, Ron Pernick. His latest book is “Clean Tech Nation: How the USA Can Lead in the New Global Economy.” from Harper-Collins. It’s available in hardcover, Nook and Kindle editions.